Corporate Creativity A study of the most innovative companies in the world

2c (HKS 66)

4c

1c

sw

2

2c (HKS 66)

4c

1c

sw

EditorialCompanies need new management concepts

As a field of study, European ma-nagement schools have been slow to discover the underlying discipline: Corporate Creativity – the ability of a company to develop new ideas. Across the Atlantic, respected ma-nagement academics at elite univer-sities have been grappling with the issue for decades. "Companies in every industry do better when they succeed in establishing a culture of creativity," says Prof. Terese Amabi-le, who conducts research at Har-vard University.

Gaps in knowledge

Alan G. Robinson of the University of Massachusetts has diagnosed a massive knowledge deficit among managers. "Managers and executi-ves in most enterprises know only too well that the creative potential in their company far exceeds creative performance. The problem is, they don't know what to do about it."

That is why in 2007 we launched Corporate Creativity as a field of study in the MBA curriculum at HHL – Leipzig Graduate School of Ma-nagement. Our aim is to firmly root creativity in companies, using sound teaching methods and academic studies. And because we carry out

independent research and develop our own management concepts, we can support executives – from team leaders to board level – as they es-tablish a creative corporate culture.

Management concepts taking you down less well-trodden paths

To create a space where ideas can emerge and grow, companies need what the respected strategy writer Robert M. Grant calls a "parallel structure" – a fundamentally diffe-rent way of approaching operational tasks on the one hand and creative tasks on the other. However, clas-sical corporate structures and ma-nagement concepts are generally completely unsuited to this extre-mely difficult challenge.

"Creativity is killed much more than it is nurtured," writes Prof. Teresa Amabile. "This is not normally be-cause managers have an aversion to creativity. On the contrary. Many of them believe in the value of new and beneficial ideas. But creativity is unintentionally ground down day by day in a working atmosphere set up – for good reasons – to maximi-ze business imperatives like coordi-nation, control and productivity. To achieve their business objectives,"

Prof. Amabile continues, "they build organizations that systematically destroy creativity."

What management techniques and methods can be used by boards and managers at all levels to encoura-ge creativity in their organizations? What should company and work structures look like in concrete terms? This study aims to answer these questions, providing mana-gers with a tangible leadership tool to help them establish a culture of creative innovation throughout the company or at departmental or team level.

In the age of creativity and innovation, managers are being asked to do completely new things. They're expec-ted to turn the status quo on its head and come up with new ideas: bold business models, products and servi-ces, new processes and innovative strategies for situations where there are no standard solutions. Deliberately breaking rules instead of just following them. Rather than overseeing the status quo, tomorrow's managers will have to transform companies into hotbeds of brilliant ideas.

Author: Jens-Uwe Meyer, Director of „die Ideeologen“ Contact: meyer@ideeologen.de

3

2c (HKS 66)

4c

1c

sw

The StudyManagement techniques for Corporate Creativity

In our search for the management techniques and methods of highly innovative companies, we joined forces with the Chair of Strategic Management at HHL - Leipzig Graduate School of Management to study the 26 most innovative companies in the world: Apple, Research in Motion, Nokia, HSBC, Google, Amazon, Hewlett Packard, McDonald's, Fiat, IBM, Toyota, Intel, Microsoft, Nike, Banco Santander, Disney, Procter & Gamble, Virgin Group, Nintendo, Facebook, LG Electronics, Samsung, Tata Group, Volkswagen, General Electric and Vodafone.

Issues covered by the study

Sources of ideas: Where do new ideas come from in the company? �How are ideas generated in the company?

Organizational structure: How does the company ensure that new �ideas can develop within the organization? How does the company ensure that new ideas do not get bogged down in the organization?

Style of leadership: How do managers motivate their employees to �start thinking in creative ways? What are the most important princi-ples of leadership within the company?

Employees: Who are the people recruited by the company? How �does the company ensure diversity within the team? What kind of environment are employees working in?

Every year, the U.S. magazine BusinessWeek publishes a list of the most innovative compa-nies in the world. 38 of them appeared in the list of 2009 as well as 2010. Out of these, we selected 26 companies for the study. We were careful to create a representative mix of industries and regions.

We analyzed more than 500 different sources, including articles from the general and specialized press, case studies, academic theses, books and interviews with executives from the companies.

4

2c (HKS 66)

4c

1c

sw

Why Corporate Creativity?A culture of innovation as a competitive advantage

A different way of thinking about innovation

When people talk about innovation in companies, the concept is often equated with innovation manage-ment. Companies are looking for tools and processes that they can deploy within existing structures. The companies we studied have a different way of thinking about inno-vation. Tools and processes can be copied. But the underlying culture cannot.

Google: Culture as the "soul" of the company There are good reasons why peop-le say that Google's "extraordinary organizational culture" is the "soul of the company". At Disney too, the basic philosophy of creativity lies at the heart of a creative and innovati-ve corporate strategy. Disney has its own institute dedicated to fostering creativity and inspiration. And even the banking giant HSBC regards the group culture as a competitive ad-vantage – the individual countries and regions operate virtually inde-pendently of each other. Traditional processes of innovation also have their place in HSBC, but more im-portant is the culture that breathes life into the processes.

No two cultures of innovation are the same, so it is difficult to simply copy techniques

The cultures we encountered in our study are as different as the compa-nies themselves. As you read the study, you will come across companies like Research in Motion, who develops and manufactures the BlackBerry. You will discover how organizational structures in these companies aim to create and value an innovative culture. Innovation is a factor in all con-texts: employee selection, incentive structures, salaries, the behavior of executives, etc. You will find out about companies that have created a more or less egalitarian system in which the traditional hierarchies are virtually irrelevant. But you will also discover that there are other ways of fostering a culture of innovation.

A unique culture of innovation re-quires unique techniques In the Indian Tata Group, egalitaria-nism of any kind is out of the ques-tion. Tata's approach is different. For example, it runs a remarkable innovation competition that honors failed innovations alongside the best and most successful ones. One of Tata's categories is called "Dare to try". The company awards a prize for an innovation that was wholeheartedly attempted, yet failed. This is Tata's way of stimu-lating risk appetite – one of the main drivers of creative companies.

The new book by Jens-Uwe Meyer, coming out in autumn 2010. How companies can become idea factories. How you can use the successful strategies of the most inno-vative companies in the world for your own benefit.

5

2c (HKS 66)

4c

1c

sw

54 321

IntroductionFive main levels

Corporate creativity cannot become a genuine competitive advantage if building a creative culture is simply de-legated to a department or person. In most of the companies we looked at, the creative culture is firmly rooted in the corporate DNA. Corporate Creativity makes itself felt at the following five levels:

Unique strategies, values and objectives

Innovation. No compromises.

Building a culture of in-novation is a central stra-tegic task. If it is to have strategic relevance, it must have its origins at the very highest levels of the company and must be broken down into bold objectives in a consistent way. The companies we looked at also have firmly rooted values that are as unique as the products and business models they develop. - Page 6

Think factory, not treadmill

Creative structures for thinking and working

The entire organization is focused on supporting the process of creative thinking. A thorough understanding of the process is es-sential before organizations can be changed in this way. And it is also essential to say goodbye to old ideas about creativity: that creativity training is the best way to stimulate creativity, that great ideas can be developed in seconds at the click of a button, and that creativity is only necessary at the start of a process of innovation.

- Page 8

Culture of risk and ex-perimentation

Innovation does not come with full coverage ins-urance

"Who dares wins." Many of the companies we looked at have taken this old tru-ism to heart. Failure is not a negative thing, but a cru-cial feature of the creative process. Instead of trying to avoid mistakes, these companies have crea-ted structures packing as much experimentation as possible into the shortest time. - Page 11

The employees

Operational strengths and creative weaknes-ses

A company is only as creative as its employees. Most of the companies we analyzed have selec-tion criteria focused on creating the greatest pos-sible variety in the makeup of the workforce and on identifying creative character traits like a love of discovery, pioneer spirit, risk appetite, etc. - Page 13

Catalytic leadership

The new role of manage-ment

Executives have a crucial bearing on the creative performance of their em-ployees and their teams. The German companies we looked at (including supplementary in-depth in-terviews with employees in order to create categories and attributes) confirmed the results of our study: even if the top executives in a company launch initi-atives to promote a culture of innovation, the target can be missed if middle management continues to use traditional manage-ment tools. - Page 15

6

2c (HKS 66)

4c

1c

sw

Unique strategies, values and objectivesInnovation. No compromises.

Apple − "putting a ding in the universe"

Apple shows customers what's co-ming next. This approach is firmly rooted in the company. Steve Jobs puts it in these words: "There’s an old Wayne Gretzky [former Cana-dian ice hockey player] quote that I love. ‘I skate to where the puck is going to be, not where it has been.’ And we’ve always tried to do that at Apple. Since the very, very begin-ning. And we always will."

Fiat − from sleeping giant to a policy of breakthroughs

In 2004 Fiat was staring bankruptcy in the face. The company had lost more than a billion dollars when Sergio Marchionne was appoin-ted the new CEO. The task he set for himself was to transform the company into the most successful car manufacturer in the world. To achieve this he set the company on a course towards uncompromising innovation. Away from the philoso-phy of incremental improvement, and towards a "policy of breakt-hroughs".

Marchionne has proved that with determination and consistency, companies can be transformed into innovation drivers in the space of a few years.

Amazon − making history as the most customer-centric com-pany in the world

Can you imagine Apple boss Steve Job going on stage and saying this? "Because of the difficult market, we've decided to postpone our innovation initiatives for the time being. This will slash our development costs by not developing the iPhone and leaving our operating system in its current state for five years."

How likely do you think is it that the two founders of Google would ever close Google Labs to cut costs? That Ninten-do would stop developing new game consoles? Or 3M would no longer bring new products to market? The answer is obvious: not in a million years. The most innovative companies in the world do not just write the word "innovation" in their corporate strategy. They have rooted it so deep in their corporate strategy that any reversal would cause a major upset.

1

The uncompromising way that App-le pursues innovation is shaped by its founder Steve Jobs. His goal? He wants to "put a ding in the universe". One of his deputies nailed the philo-sophy as follows: "Customers don't know what they want. We have to tell them what to buy."

Ask Amazon boss Jeff Bezos what motivates him and you will get the answer "making history". The vision of the company is clear: "The most customer-centric company in the world. To create a place where peo-ple can discover and find everything they can buy online." This also invol-ves thinking innovation over the long term. "We're willing to plant seeds that will take five or seven years to fully grow." Of course, the next quarterly report might look better if Amazon's goals were not so ambiti-ous. Here too, Jeff Bezos is thinking long term. "This company gets the investors it deserves."

7

2c (HKS 66)

4c

1c

sw

Unique strategies, values and objectivesMagical values and visions1

"Believe you can change the world." �

"Make a contribution every day." �

"Radical ideas are not always bad ideas." �

These mantras are the guiding principles of Hewlett Packard. They are the Rules of the Garage defined by com-pany founders Bill Hewlett and Dave Packard, and intended as a daily reminder to employees of where the com-pany started: in a small garage on Addison Avenue in Palo Alto, California. The Rules of the Garage are strong principles that shape the company to this day: "Work quickly, keep the tools unlocked, and work whenever." "No politics, no bureaucracy." "Invent different ways of working." "Believe that together we can do anything." "Invent." Principles like Hewlett Packard's are often rooted deep in the DNA of successful innovation leaders.

Google - A distinct philosophy of innovation

Google's "nine notions of innovati-on":

Ideas come from everywhere. �Google expects everyone to in-novate, even the finance team.

Share everything you can. �

You're brilliant, we're hiring. �

A license to pursue dreams: 20 �per cent time for employees to pursue their own ideas.

Innovation. Not constant impro- �vement.

Don't politic. Use data. �

Creativity loves restraint. �

Worry about usage and users, �not money.

Don't kill projects. Morph them. �

Virgin - Values beyond the normal

Richard Branson, founder of Vir-gin, has also enshrined values in his company that are different from what would generally be expected from a large company. Attractive and magical visions:

Staff first, then customers and �shareholders

Shape the business around the �people

Build, don't buy �

Be best, not biggest �

Pioneer, don’t follow the leader �

Capture every fleeting idea �

Drive for change �

Nokia - Philosophies are hereditary

The guiding principles in these companies stay the same even if there is a change of management. For example, Nokia continues to be shaped to this day by the princip-les introduced by Jorma Ollia (CEO from 1992 to 2006). He created an atmosphere in which everyone felt involved and which also engendered a sense of urgency. Ollia once said his favorite type of company was an achieving society, in which payment went to the people who had proved their talent and skills. The principles introduced by Ollia remain rooted in Nokia's basic values: commitment, teamwork and partnership, innova-tion and humanity.

8

2c (HKS 66)

4c

1c

sw

Think factory, not treadmill Creative structures for thinking and working2

In a company, virtually everything seems to run along predefined lines. From their very first day, new em-ployees are confronted with stan-dardized processes: the job appli-cation and appointment process is followed by the induction process; there are training, appraisal and promotion processes; the produc-tion process lays down exactly who does what and how; an evaluation process ensures that quality re-mains consistently high; and so on.

Managers have learned to develop, optimize and monitor processes, to establish rules, to identify interfaces and to measure process efficiency. This all makes sense in virtually eve-ry part of a company. Except one: creativity.

Creative processes are different "Efforts to achieve lean processes have led many companies to cut idle times out of human processes," writes Kirsten D. Sandberg of Harvard University. "What we call idle time or spare capacity in a machine could be called thinking time or incubation time in a human being."

Sandberg goes further. She believes that the management of large com-panies does not understand how the creative thinking process works. Managers think in terms of traditio-nal production processes, but the-se are fundamentally different from creative thinking processes:

"When most people think of produc-tion, they think of the input (leather and rubber, for example), some kind of transformation (cutting and sew-ing) and the result (shoes). The pro-cesses are linear, unambiguous and predictable. We can grasp them, analyze them and improve them by improving time and other resour-ces. Time is money. Less is more: the shorter a process, the more money is made. A thought, on the other hand, frequently comes from a nonlinear, subconscious or even random process, and the nature of the transformation can vary widely each time."

Creative potential is not accessible with traditional processes

The U.S. academics Alan G. Robinson and Sam Stern have traced back brilliant ideas to their origins in hundreds of companies. "In every company we looked at, we met people who felt that the creative potential in their company was much higher than current performance would suggest. They are right. We believe that this will not change until the true nature of creativity is generally recognized. Most of the creative potential of a company simply cannot be accessed by the standard planning and control mechanisms used by managers."

Traditional processes: don't kill them – improve them

But how? None of the companies in our study killed processes. What they did in the main was improve them. By adding work structures that encourage and allow creative thinking. Creativity must not come second to the processes. The processes are subordinate to creativity.

A different way of thinking about processes

9

2c (HKS 66)

4c

1c

sw

Think factory, not treadmill 2.1 A different approach to hierarchies2

In traditional companies, innovation often fails because of the structures. If you want to know what the typical enemies of creativity are, the usual suspects keep cropping up in study after study:

Political problems and trench warfare within the company. �

Destructive criticism, destructive competition and destructive pressure. �

Strict control by the management. �

An excess of formal structures and procedures. �

Precisely defined processes specifying what has to be improved by whom using what methods. �

The companies in our study have systematically erased these enemies of creativity from their structures, redefining the traditional concepts of hierarchy.

Samsung − no hierarchy in creative strategic units

Samsung has a clear strategic aim. "Good design is the most impor-tant thing that sets us apart from our competitors," says CEO Yun. To transform Samsung from a low-cost manufacturer into one of the most innovative companies in the world, he prescribed a kind of creative shock therapy. Yun opened seven Design Centers all over the world, in which new products are developed.

All employees are encouraged to say what they think and to contra-dict their superiors without the fear of breaking cultural rules. There is no hierarchy in strategically impor-tant units involved in innovation. The culture of the operational units in company headquarters, however, remains traditionally South Korean.

Microsoft − agility as a guiding principle

If someone walks into Microsoft in a suit, they are either a consultant or they are there for a job interview. The relaxed social interaction, the unusual dress code and first name terms (they even use the famili-ar "Du" form in Germany) are the most visible signs of the absence of hierarchies. The big idea is that a company without gridlocked hier-archies is more agile. Microsoft has learned from bitter experience: with Windows Vista, the company fell into the complexity trap, and the de-velopment process was made more and more complex because of the constant need for cross-checks and approvals. So the programming of Windows 7 started with an act of li-beration: the hierarchical levels were cut by a half, and the number of unit managers was reduced by a third.

McDonald's − "Noodle Team", not rigid hierarchies

Rigid structures and hierarchies have no place at McDonald's. When it comes to developing new ideas, everyone is involved – the partners supplying the raw mate-rial, employees from various units and hierarchical levels, customers. McDonald's has created its own test kitchens and "Noodle Teams", where employees at all levels can develop and try out new ideas. The hierar-chies are flat. Anyone can contact anyone, and anyone can talk about new ideas with anyone else. For CEO Jim Skinner, this is one of the competitive advantages of the com-pany. "The result is a wealth of ideas flowing through the company. They come from every direction."

What happens if rigid hierarchies start to form again? What if processes start to get bloated or if bureaucracy gains the upper hand? The excess weight is simply shed. This is what happened at Hewlett Packard. They have been running a program called "Happy People" since 2008. It has just one objective – to erase all inefficient processes and unnecessary bureaucracy from the company.

10

2c (HKS 66)

4c

1c

sw

Think factory, not treadmill 2.2 Creative dream teams versus innovation management2

The fine art of innovation is not simply a matter of designing processes. It is about bringing people together to form a "dream team" together. Dream teams are small, interdepartmental teams representing a range of diffe-rent perspectives and having a high degree of autonomy and clear objectives. They are made up of people who are so enthusiastic about the subject that they do not simply switch their brains off after work.

We encountered these work structures in an astonishingly high proportion of highly innovative companies. In these companies, they have sometimes become a permanent feature of the corporate philosophy. They do not understand the notion of delegating an innovation project to a "technical department" to be taken forward. Instead, they use small teams that are able to think fast, communicate fast and act fast.

Nike− Sandbox Meetings

Innovation sessions at Nike have a simple name: "Sandbox Meetings". They are meetings at which manage-ment develops new ideas and con-cepts, which are then passed direct-ly to a product development team. The product development team has three members: a designer, an en-gineer and a marketing expert. This team develops the basic principles of the project. As soon as the initi-al concepts are in place, industrial designers, technical designers and graphic designers come on board. "We try to understand the values and traditions of the sport we are designing for," says one of the ma-nagers, "and then we add innovative materials in order to improve perfor-mance."

Amazon − the "Two Pizza Rule"

"If two pizzas are not enough for a team, the team is too big. This li-mits groups to between five and se-ven people, depending on their ap-petite." CEO Jeff Bezos has a simple reason for the “Two Pizza Rule”. "As teams grow bigger, people spend longer on coordination. This is so-metimes very misunderstood, but if you want to create a good working atmosphere where people can really build, you don't want them to spend much time coordinating things." At Amazon, this means that tasks and challenges are consistently broken down so that they can be done by two-pizza teams. The result? Small agile teams instead of rigid proces-ses.

Nintendo − Dream Teams and the Wii

The success of the Wii game con-sole made Nintendo big news. Nin-tendo president Satoru Itawa descri-bes the strategy behind it in a single sentence. "We are fighting against the indifference of people who have no interest in video games." Crea-ting new markets instead of serving old ones. Yet the secret of the Wii is not simply a matter of strategy. It is the creative corporate culture that implements the strategy. About 20 three-member teams were given the task of creating a peripheral with an existing game. The teams were gi-ven complete freedom of movement. What emerged were groundbreaking designs, eventually leading to inno-vations like the Wii Controller.

11

2c (HKS 66)

4c

1c

sw

Culture of risk and experimentation Innovation does not come with full coverage insurance3

In Hundreds of management instruments have been developed in past decades, mostly aimed at minimizing risk along the value chain. These management instruments make a lot of sense in many parts of a company – for example, when evaluating legal and financial risks ahead of a big decision. And even with innovation, it is wise to consider the risks of an idea alongside the opportunities it presents. Nevertheless, a careful evaluation of risk is not always enough to stop mistakes happening. In fact, the opposite is true. Mistakes are an important part of the development process.

Companies that are prepared to experiment and take risks create a space for more creativity. This has long been accepted wisdom in aca-demic circles, and it has been borne out by our study. The company's willingness to take risks, to expe-riment and to let mistakes happen is an important factor. But it goes further – companies can positively encourage experimental mistakes precisely in order to draw the right conclusions from them.

Most of the companies in our stu-dy have discovered this. Although market analyses, customer surveys, concept testing and other tools have not been discarded completely, the companies have become much less dependent on them. Tools like this often create a decision-making va-cuum – because the market research says no, nobody has the confidence to make a clear decision. So another survey is commissioned or a decisi-on is postponed.

Innovations change markets

Innovations, when they come onto the market, often change customer needs, or even create new customer needs that did not exist before. Alternatively, the way customers use products in practice is completely different than the theory. This is what Nokia realized after the company launched the open internet platform Beta Labs in 2007. The platform allows users to download, test and comment on new applications that are still in the beta phase. The unfinished mobile phone app "Sports Tracker" was downloaded more than a million times. Consumers used it in ways the developers could never have imagined.

A new understanding of risk

Instead of creating a culture of risk avoidance, the companies have created a culture of making mistakes and experimentation which, within a defined structure, permits some-thing many companies find difficult: trying things out and accepting the risk of planned failure.

"Innovators rely on their courage to innovate. An active bias against the status quo and an unflinching willingness to take risks." (Dyer, Jeffrey/Gregersen, Hal/Christensen, Clayton. “The Innovator’s DNA”, Harvard Business Review, Decem-ber 2009)

12

2c (HKS 66)

4c

1c

sw

Culture of risk and experimentation Innovation does not come with full coverage insurance3

Research in Motion − the "9 out of 10" rule

For Mike Lazaridis, one of the com-pany founders, there is no doubt about it. He sees failures as nor-mal, as part of the innovation pro-cess. When the time comes to try out theoretical ideas for real on the BlackBerry, he is always surprised. "Nine times out of ten, we come up with something that sounds great. At the intellectual level, it sounds like a great function or a great way to implement a function.

Nine times out of ten it doesn't work. We try it out and no one likes it, or it simply doesn't work or just works clumsily." The difference with a ma-nagement style characterized by risk aversion is that the nine failed ideas are seen as leading up to the tenth idea, the one that works. For Mike Lazaridis, this has consequen-ces in terms of the corporate struc-ture. "The trick is, can you create an environment where it's OK to make mistakes because that's how new things happen?"

Tata Group − failure is rewarded

If there was a prize for the most uncon-ventional in-novation com-petition in the world, the Tata Group would be in with a good chance of winning. In 2009, 1,700 innovation teams from 65 Tata companies vied to win the various categories of the competi-tion. What makes the competition special is that alongside the most successful innovations, prizes are awarded to really forward-looking ideas that are completely new. Tata also awards a prize in the "Dare to try" category. This category re-wards the courage of a team that made a serious attempt to advance a major innovation, but failed in the process. "We all know that intelli-gent failures are important milesto-nes on the way to forward-looking innovations," is how the competi-tion jury describes this category. "This prize rewards this spirit."

Apple – "customers don't know to buy"

In the 1990s, Apple spent a lot of time consulting product adviso-ry committees or hunting for so-called "customer insights" in focus groups. This made the company re-active. The fear of doing something wrong meant the company used today's customer wishes as models for the innovations of tomorrow. In our research, we came across inte-resting blogs in which current and former employees discuss the App-le culture. There was a comment by an Apple vice- president that sums up an idea that characterizes A p p l e : "Cus tomers don't know to buy. We need to tell them what to buy."

On closer inspection, the idea ma-kes a lot of sense. How many cus-tomers would have said in a focus group in 2009 that what they really need is an iPad? Apple consistently implements the philosophy of "don't be frightened of failure". After all, if you move forward courageously, you are bound to make mistakes. This is what this HR manager me-ant when he wrote the following in an Apple insider blog: "Apple vice-presidents are entitled to make mis-takes without being made to pay for them."

The culture of risk and innovation in the companies we studied is not an end in itself. On the contrary. The risk goes hand in hand with total target orientation, discipli-ne and solid, detailed planning.

Creating a culture of risk and expe-rimentation is not about completely disregarding the traditional methods of risk analysis. Nor is it about throwing good money after bad. Instead, it is about permitting failure within clearly defined boundaries, keeping cle-arly defined objectives in mind. But is this also an option for a company that is under constant scrutiny by the stock market and analysts in the banks? Amazon boss Jeff Bezos thinks so. "If the people running Amazon.com didn't make serious mistakes, we wouldn't be doing a good job for our shareholders. It would mean we never get to test how far we can go."

13

2c (HKS 66)

4c

1c

sw

The employees Operational strengths and creative weaknesses4

A study of the most innovative companies in the world clearly shows that it is not a question of the amount of money invested in innovation centers, employee well-being or interior design. In the end, it is about coming up with the right idea at the right time. If this does not happen, the most lavish innovation center is a waste of mo-ney. That's because over time, every innovation and development center takes on a life of its own. Certain ways of doing things are ruled out from the beginning because they have not worked in the past. The developers are barred from using certain approaches because however skilled they are as engineers, they lack a small piece in the puzzle of knowledge that would unlock their idea.

Academics have known the reason for decades: misconceptions about the composition of teams and per-sonnel policy. Too many companies place too much emphasis on indus-try experience, because selecting candidates on this basis is a way of strengthening the operational side. But operational strength quickly becomes creative weakness when

it comes to developing new ideas. This is because the things that are valued and respected as industry experience are only helpful up to a point. Sometimes they even get in the way. Every industry has its own truths and ideas about what can be done and what can't. If 10 emplo-yees are appointed to fill 10 posi-

tions on the basis of their industry experience, this is the best way to guarantee that the department will be bogged down in old ideas and techniques. The profiles of candida-tes who are actively sought out by the most innovative companies in the world are therefore very diffe-rent from the standard profiles.

14

2c (HKS 66)

4c

1c

sw

The employees Operational strengths and creative weaknesses4

Microsoft - intelligence, not experience

Right from the word go, Microsoft founder Bill Gates made a point of recruiting extremely intelligent peo-ple. The company "places intelli-gence ahead of experience".

Microsoft does not employ people with experience and expect them to be motivated. Instead, they employ intelligent people who are "driven" and who are given the opportunity to expand their horizons. The recru-itment tests are designed to reflect this. The candidates are deliberate-ly pushed to their limits to find out whether they can "survive" in the Microsoft environment, which is characterized by dynamism, cons-tant change and a slight tendency towards chaos. If no suitable candi-date is found, Microsoft deploys the "N minus one" strategy. The position is simply left unfilled.

Nike - diversity as a driver of innovation

"It's not a single product model, nor a single manager, nor one ad, nor a single celebrity, not even a single in-novation that is key to Nike. It is the people of Nike and their unique and creative way of working together." (Phil Knight, founder). Nike has done what everyone in politics and econo-mics keeps on talking about – mar-rying innovation and diversity. The U.S. workforce includes 1% Ameri-can Indians, 9% Asian origins, 11% Latin American origins, 20% black. 48% are women, 52% are men. For Nike, diversity is a competitive ad-vantage and a central element of the growth strategy. The underlying philosophy? A wide-ranging dialog and deeper links with different com-munities as a basis for new ideas. Lots of ideas have originated out of this diversity, for example special sneakers for Native Americans, a target group that is more likely to be overweight.

Virgin Group− revolutionary with a large dose of humor

The culture of the Virgin Group is heavily influenced by the personality of its founder, Richard Branson. He is slightly eccentric, with a healthy dose of humor and certain lack of respect for formal hierarchies and authority. At the same time, the company culture is characterized by hard work and a willingness to take personal responsibility. Virgin looks for people who will fit into this culture: people who will not just en-joy work, but will love it with a pas-sion. Applicants are not told what Virgin-ness is exactly. Virgin defi-nes Virgin-ness in the same way as

the company: something or-ganic, in a state of constant flux. Above all, em-ployees must live the values

of the Group. Giving customers a better deal by being "fun, innovative and competitively challenging".

Decisions about the types of candidates the company is looking for must be taken with great care, especially in the context of innovation. A uniform workforce with lots of industry experience will achieve efficiency gains in the short term: the new recruit will hit the ground running, and less time will be taken up with discussions. But over the long term, a recruitment strategy striving for a wider mix will produce more creativity. There are good arguments for both strategies. It is important to have a healthy balance between insiders and outsiders. The recruitment policy has a huge influence on the quantity, variety and quality of ideas in the company.

15

2c (HKS 66)

4c

1c

sw

Catalytic leadership The new role of management5

This approach is hardly likely to ever generate ideas. "Brainstorming! In-spiration now!" Creativity and the traditional boss/employee dynamic do not go well together. That is why management concepts are under-going such dramatic change. The management concepts and philoso-phies we encountered in our study are fundamentally different from those needed in order to drive the operational side of things.

Managers and casino operators – what they have in common

For U.S. academics Alan G. Robin-son and Sam Stern (see above), managing creativity is mainly about increasing probabilities. "It is similar to operating a casino. Even though casinos do not know how individual gamblers will fare at any given

table, they know very well that if enough customers come and play for long enough ..., the casino will make a very predictable and stab-le profit." Harvard professor Teresa Amabile writes that the social envi-ronment can "influence the extent as well as the frequency of creative be-havior". At department or team level, the person with direct influence on this social environment is the mana-ger. We heard the same message in the personal interviews we carried out in German companies to conso-lidate our findings. The culture of in-novation within a company can dif-fer dramatically from team to team. There might be a highly creative and innovative team in one room, with a team focused on maximum operati-onal efficiency just next door.

Catalytic leadership: a new management style

U.S. author Ray Anthony goes as far as identifying "innovative leadership" as a distinct management style: "So-meone who encourages maximum effective creativity among followers and places the focus there." He calls these people "galvanizers who get people to attack things they’ve only dreamed of previously". The ma-nagement of innovative companies acts as catalyst for new ideas. So the best name for the leadership sty-le we found is "catalytic leadership". The companies we studied create the right conditions for catalytic lea-dership in different ways.

"Forward, MARCH!" The relationship between bosses and their employees used to be all about orders and obedience. The manager says what needs to be done, and the employee does it. In a disciplined way. Correctly. Without objections. And all this happens in hierarchies that are a bit like the military.

16

2c (HKS 66)

4c

1c

sw

Catalytic leadership 5.1 Defining targets and limitations5

Intel − innovation comes from pressure

Ideas cannot be forced, it's true. But pressure, in the form of ambitious and specific innovation objectives, can move mountains. That is why objectives-based management has such a high priority at Intel. Each employee has a clear idea of the corporate strategy and of the bumps in the road before a new product is released. Developers are given the tools they need to achieve the ambi-tious targets. For example, the Intel Developer Forum takes place twice a year. Intel challenges participants to reveal their most difficult issue and to open it up for discussion by a panel of experts. All the time, managers are subtly reminding em-ployees that successful innovation means tackling the most difficult is-sues – not the ones that are easiest to solve.

General Electric − Die Ideen-quote

Even Thomas Edison, the inventor and genius who founded General Electric, had an ambitious innova-tion objective: "a small invention every ten days and a big invention every six months". The company thinks along the same lines to this day. Every unit leader is required to go before a special committee once a year and present three new ideas for growth.

General Electric's ideas quota au-tomatically forces middle manage-ment to act. This engenders an al-most automatic reflex to create the right conditions for these ideas to emerge in their own departments – by setting objectives and bound-aries, and by giving employees the freedom they need to develop ideas within these boundaries.

Amazon − Im Überfluss entste-hen keine neuen Ideen

If you have three million euros to de-velop an advertising campaign, your first thought will be an expensive slot on TV. If your task is to achieve the same impact with just 300,000 euros, you have no choice but to get creative.

"Austerity stimulates innovation in the same way as other limitations do," is how company founder Jeff Bezos puts this fundamental philo-sophy. He remains one of the lea-ding proponents of an approach to innovation that uses limitations to stimulate creativity. Google, too, be-lieves in the principle of limitations – budgets are made smaller not bigger, deadlines shorter not longer, teams smaller not larger. Management sti-mulates creativity with a cleverly selected variety of limitations.

In the first section, we discussed the importance of offensive strategies and unique corporate values. But these things are worthless unless managers at all levels can break them down into specific objectives. If you only expect the possible from a team, it will rarely do the impossible. If you encourage a team to think along tried-and-tested lines, it will not come up with ideas going beyond these limitations. Catalytic leadership is about setting ambitious, visionary objectives and regularly shifting the normal boundaries.

17

2c (HKS 66)

4c

1c

sw

Catalytic leadership 5.2 Creativity not control – autonomy as a leadership style5

Nike – freedom rather than time stamps

There are not many companies that give their creative employees as much freedom as Nike gives its hundreds of designers. Designing sneakers or apparel at Nike is not "about punching the clock but all about following your passion," says John Hoke, Vice-President for foot-wear design.

It is an example of a creative cor-porate culture that works by finding inspiration far beyond traditional meeting rooms and transforming it into ideas. "When you sit down and develop ideas, it's a combina-tion of everything you've ever done and seen in your life," says Tinker Hatfield, Vice-President for Innova-tion, designer of the Nike Air sports shoe. "Interestingly, these shoes have their origin in the architecture of the Pompidou Center in Paris," he explains. Nike takes this open way of thinking and the freedom it gives to designers, and turns it into a measurable "return on creativity". Simply put, Nike transforms creative freedom into profit.

Google – Die Lizenz zum Träumen

Google developers have the freedom to use 20 percent of their working time to pursue any projects they are personally interested in. "It's not like people really religiously say, okay, every Friday I'm working on exactly what I want to work on," said Maris-sa Mayer, Vice-President of Search Product and User Experience, in a lecture at Sanford University. "So-metimes people do that, but more often, you know, they'll work on their core project for a few months, and then they'll take some time off of that and work on their 20 percent project." In her lecture, she also ans-wered a question she is often asked by skeptics: does 20 percent free time not just mean the company is throwing away 20 percent of its pro-ductivity? To answer the question, Mayer traced Google innovations all the way back to their source. "50 percent of all new Google products come from the 20 percent time."

Nokia – Freiheit für eine Woche

Nokia is a good example of how companies can give their emplo-yees autonomy for a limited time. Its Innovation Week takes the Google approach, but limits it to a particu-lar period. Small groups made up of members of different research labs decide for themselves what to work on.

They have a week to come up with ideas and concepts. The bar is set very high – by the end of the week, there should ideally be a demo. It is part of an initiative to breathe new life into creative thinking and crea-tive activities, time and again. Nokia proves that it is possible to stimulate creativity by granting autonomy in a targeted way.

InFor years, academics have been talking about "intrinsic motivation" as one of the main factors in creativity. If employees can tackle a problem that stimulates them and that they have a passion for, the chances are that the results of the creative thinking process will be better than if creative tasks are assigned according to the traditional principle of delegation.

If you have a genuine passion for a particular subject, you will get to grips with the subject matter more quickly and more solidly. Nobody has to tell you what to read or research – you will do it by yourself. And your brain will not stop thinking

when you go home after work. Many studies have found that "intrinsic motivation" keeps cropping up as one of the most important factors in crea-tivity. The companies we looked at have switched to allowing employees to

seek out their own areas of interest in certain strategically important areas of innovation.

18

2c (HKS 66)

4c

1c

sw

Catalytic leadership 5.3 Managers as inspirers5

McDonald's − the battle against complacency among executives

When do companies become crea-tive? According to McDonald's, the answer is as simple as its product line: when every manager has inter-nalized innovation as a mindset. And when every employee is encouraged to develop ideas that lead to innova-tions. "We use leadership as a vehic-le to create a culture of continuous improvement and innovation at Mc-Donalds," says David Small, Head of Executive Development in the U.S. Employees are encouraged to deve-lop new ideas for innovations. It is part of a culture in which executives have an open mind when it comes to new ideas. Team leaders and middle management are regularly invited to sit on innovation panels. Innovation panels bring together people from very different regions and levels in the company. The company wants executives to be self-confident, but not so much so that they start "be-lieving that others can't do things better".

Intel – an unusual approach to delegation, keeping the Outsi-der Advantage

How can employees be constantly presented with new impressions? And how can they repeatedly find new ways of looking at things so they keep hold of what Intel calls the "Outsider Advantage". The unwrit-ten rule that the most experienced researchers handle the most impor-tant project is also deliberately bro-ken at Intel.

The management wants to make active use of the "Outsider Advan-tage" – the advantage that comes with a fresh look from the outside. An unusual decision was taken for the TeraHertz project: the peop-le chosen for this, the company's most important project, were not the most experienced, but the most recently appointed. The reason was that new employees have not yet learned what is impossible or too difficult, and are more willing to try things out.

Google − inspire, don't dictate

What Google asks of its manage-ment is nothing less than a reversal of traditional management princi-ples. Don't dictate, inspire. Don't order, enable. Don't prevent cons-tructive friction, encourage it. And stimulate people to have new ideas, innovations and fun. Fun as a cata-lyst for new ideas.

It may sound like a Utopian dream at first, but in fact, it is based on cle-ar results from academic studies. Teresa Amabile's interpretation of "fun" is not the traditional one – for example, people spending their wor-king hours playing table soccer. For her, fun is instead the deep satisfac-tion and fulfillment employees have in their work. Google makes space for this kind of fun. Google's 20 per-cent rule is an important part of this. Employees can use 20 percent of their time to pursue their own new projects. One of the fruits of this unusual leadership style is Google News.

In the companies we studied, the role of executives was not the same as in traditional companies, which are so focused on planning, delegation and control. This does not mean scrapping the traditional functions of ma-nagement – monitoring objectives and planning activities occupy much of the working day, even in companies like Intel and Microsoft. But managers need to do something extra. They are increasingly becoming inspirers. It is not just about defining and optimizing this process, but also about keeping it fresh every day and motivating employees to give their best creative performance.

19

2c (HKS 66)

4c

1c

sw

Fazit

Creativity and innovation have never been such hot topics before. There have never been so many opportu-nities to link together very different brains and thinkers, and there have never been so many superbly trained managers coming from the world's elite business schools. Neverthe-less, when it comes to innovation, the thinking of most medium-sized and large companies is flawed. This flawed thinking means that proces-ses are prolonged endlessly, that imagination and creativity are repla-ced with market research methodo-logies, and that no one experiments like Thomas Edison, preferring in-stead to commission the next fea-sibility study. And it also means that hardly any companies are prepared to turn received wisdom on its head, like Albert Einstein did in his day. New processes are simply created instead.

In the years to come, companies will increasingly have to apply the approaches we came across in the most innovative companies in the world. It will be increasingly neces-sary to weigh the conflicting inte-rests of greater efficiency and grea-ter creativity against each other. And companies will increasingly be mea-sured according to how many ide-as and how many successful ideas they can come up with. In terms of management, this requires a shift of thinking at all levels. After all, creati-vity – as our study revealed – is not just something that happens at the start of a process of innovation.

Creativity is rooted deep in the DNA of the most innovative companies in the world. Every project, every workgroup and every process is designed so that obstacles can be overcome quickly and straightfor-wardly with creative solutions, and decisions can be taken with the mi-nimum of paperwork, fuss and delay – creating a space where ideas can form that leave other companies far behind. I hope this study helps to give you a better understanding of creativi-ty and creative thought processes. And to raise awareness among managers at all levels as they int-

roduce new leadership techniques and work structures in their companies. Hopefully, they will be able to say more often "what a brilliant idea!" This new way of thinking is important for companies, but it involves providing management with new tools in order to leverage creativity in the company in a new way. Futurologists are already seeing creativity as a key resource in future. According to one recent study, the economy is on the brink of the most fundamental change since the industrial revolution: saying goodbye to

the industrial society forever and heralding the creative economy. Making the best possible use of this resource is impossible without really understanding how it ticks. We are currently working on more studies investigating what it is that fosters creativity in a company. We aim to provide the support you need to increase the number of times the people in your company, department or team can say "what a brilliant idea!"

die Ideeologen - Gesellschaft für neue Ideen mbH

Schwarzwaldstraße 139

76532 Baden-Baden

Tel.: 0700-4333 6783

www.ideeologen.de

Die Ideeologen®

Die Ideeologen ("The Ideaologists") are the specialists in strategic idea development and innovation culture. The company works with clients including Microsoft, Volkswagen, TUI and the BASF Group, running strategic ideation processes, designing creative processes and helping companies build a creative corporate culture. Die Ideeologen achieve this through a consistent combination of strategic and creative thinking.

Leistungsportfolio

Organization development, consulting, lectures, training, workshops, coaching, idea development

Der Autor dieser Studie

Jens-Uwe Meyer, director of Die Ideeologen, is Germany's highest-profile expert in creativity in companies. In 2009 and 2010, he published around 90 articles in German and international publications (including FAZ, Welt, various management publications). The author of six books combines the strategic expertise he gained from his MBA with creative thinking techniques.

Jens-Uwe Meyer holds Germany's first teaching position in Corporate Creativity in the MBA curriculum at HHL – Leipzig Graduate School of Management, where he is currently completing a doctorate in the field. His resume is as interesting as the ideas he promotes: before setting up Die Ideeologen, he was a police inspector in Hamburg, a studio manager in the U.S. and lead reporter for Pro Sieben and a radio director.

2c (HKS 66)

4c

1c

sw